<PAGE>
[Logo] M F S(R) SEMIANNUAL REPORT
INVESTMENT MANAGEMENT JUNE 30, 1999
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[graphic omitted]
A SERIES OF MFSD(R) VARIABLE INSURANCE TRUST(SM)
MFS(R) GROWTH SERIES
<PAGE>
<TABLE>
MFS(R) GROWTH SERIES
A SERIES OF MFS(R) VARIABLE INSURANCE TRUST(SM)
<S> <C>
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* Massachusetts Financial Services Company
Chairman, Chief Executive Officer, and 500 Boylston Street
Director, MFS Investment Management(R) Boston, MA 02116-3741
Nelson J. Darling, Jr. DISTRIBUTOR
Professional trustee MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow Boston, MA 02116-3741
Vice Chairman,
Capitol Entertainment Management Company; SHAREHOLDER SERVICE CENTER
Private investor and real estate consultant MFS Service Center, Inc.
P.O. Box 2281
CHAIRMAN AND PRESIDENT Boston, MA 02107-9906
Jeffrey L. Shames*
For additional information,
PORTFOLIO MANAGER contact your financial adviser.
Stephen Pesek*
CUSTODIAN
TREASURER State Street Bank and Trust Company
W. Thomas London*
WORLD WIDE WEB
ASSISTANT TREASURERS www.mfs.com
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
</TABLE>
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Contract Owners,
It has been almost two years since financial turmoil began to rock markets in
Asia, Russia, and Latin America. Even developed markets such as Europe and the
United States were not immune. In the U.S. equity market, for example, investors
focused on a narrow group of 50 of the largest-company growth stocks because
they seemed to offer less volatility in uncertain times. Fixed-income investors
also became more concerned about risk, moving money into U.S. Treasury
securities and out of corporate and municipal bonds and mortgage-backed
securities.
The narrowness of the market was just one of three broad issues that dominated
the U.S. equity market until recently. The other two were a slowdown in
corporate earnings growth and high valuations, with stocks of many companies
selling at extremely high prices relative to their earnings.
Although these have been challenging issues, we now see signs that we feel
demonstrate each one is changing for the better. Today, we believe the markets
are presenting more opportunities for investors to diversify, for our portfolio
managers to find good values, and for us to show the benefits of staying with
our long-term objectives and strategies. Investors seem to be regaining
confidence in a wider range of companies. Stocks of some small and mid-sized
companies, as well as some large industrial companies, have begun to perform
better in the past few months than they had for the previous year or so. These
companies appear to have benefited from early signs of stability in emerging
markets and a continuation of economic growth in the United States.
U.S. companies also have produced better earnings. Corporate earnings were, on
average, relatively flat in 1998. However, we expect earnings to grow 12% to 14%
this year because more companies have benefited from the strong economy and from
aggressive consolidation and cost-cutting measures they have taken over the past
several years.
Based on their earnings projections, our analysts estimate that the U.S. stock
market is still about 30% overvalued. While there has been some shift to a wider
group of stocks, many investors are still focusing on the large-company stocks.
As a result, most of the overvaluation is in the 50 largest stocks in the
Standard & Poor's 500 Composite Index (the S&P 500), a popular, unmanaged index
of common stock total return performance. That means about 450 stocks are
selling at more attractive prices, particularly given what we see as the
improved earnings outlooks for these and many small and mid-sized companies not
in the S&P 500. These companies also benefit from consolidation, cost cutting,
and global growth. Because they are smaller, they may be able to respond to
these changes more quickly, and thus they have the potential to grow faster than
the big companies.
The fixed-income markets, meanwhile, seem to be approaching the level of
relative stability they enjoyed before the Asian turmoil. Some credit for this
stability goes to the Federal Reserve Board (the Fed), which has reassured
investors that it will act to prevent rapid economic growth from causing higher
inflation and reduced purchasing power. Also, once investors saw that the
overseas turmoil had little, if any, effect on the financial strength of most
domestic bond issuers, the major non-Treasury markets -- corporate, municipal,
and mortgage -- began to rebound. Our portfolio managers are now finding more
opportunities to buy bonds with relatively stable prices and attractive yields.
The past two years have challenged investors. However, we believe we are well
positioned for the current environment because our analysts and portfolio
managers continue to rely on MFS(R) Original Research(SM) to help evaluate the
long-term investment potential of each holding being considered for our
portfolios. Also, we believe our discipline of staying with our clearly defined
investment strategies can help us offer investment products with the potential
to sustain returns over a variety of market cycles.
We appreciate your confidence and welcome any questions or comments you may
have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
July 15, 1999
MANAGEMENT REVIEW AND OUTLOOK
Dear Contract Owners,
The Series, which commenced investment operations on May 3, 1999, focuses on
companies that we believe exhibit some kind of sustainable competitive
advantage, strong market share, low production costs, research and development
strength, distribution expertise, and good customer service. In addition, we
look for companies with the potential to benefit from mismatches in supply and
demand. In the cable sector, for example, the top 10 cable operators had a 35%
market share five years ago; today, the top 10 companies have about a 75% share.
We believe this industry is on the verge of introducing several new products,
including advanced analog, digital, Internet, and telephone products. Because
cable lines can carry more information than other types of lines, we believe
cable companies are in a much better position than telephone companies to
deliver these services.
The Series' largest sector is technology, in which companies such as Cisco
Systems and Microsoft have benefited from the global drive to increase
productivity and from the expansion of the Internet. This sector also includes
semiconductor manufacturing, a cyclical industry that typically performs well
when global economies are strong. For the past couple of years, the
semiconductor industry had too many manufacturing plants due to the slowdown in
Asia and emerging markets, where many products that use semiconductors are
manufactured. Now, with those markets showing signs of recovery, demand has
increased. Because of their strong product lines, we believe semiconductor
companies in the portfolio such as Motorola, Texas Instruments, and Analog
Devices appear to be well positioned to benefit.
The Series' second-largest sector is leisure and includes companies such as Time
Warner, a large provider of cable programming content, and Univision. We believe
Time Warner's management has improved and is using its capital more prudently by
cutting costs. Univision is a cable company that has a 90% share of the Hispanic
market, which is the fastest-growing segment of the population and has very
attractive demographics for advertisers.
Another significant sector is health care, in which the Series is focusing on
stocks such as American Home Products and Bristol-Myers Squibb that appear to
offer attractive values and earnings outlooks. The Series also has holdings in
health maintenance organizations (HMOs) such as CIGNA and United HealthCare. We
think HMOs are in the midst of a positive pricing cycle. After several years of
price constraints, these companies are starting to raise prices, which we
believe should make them more profitable.
Looking ahead, we are cautiously optimistic. We think the stock market is still
expensive relative to earnings, particularly large-company stocks. But we are
seeing strong performance from mid-sized and small-company stocks that reflects
a broadening of the market. Because we think the global economy is
strengthening, we also have included companies such as AlliedSignal, an
aerospace, automotive, and environmental products manufacturer, and Illinois
Tool Works, a diversified manufacturer of plastic and metal components,
adhesives, and packaging.
Respectfully,
/s/ Stephen Pesek
Stephen Pesek
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
current only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
The portfolio is actively managed, and current holdings may be different.
<PAGE>
PORTFOLIO MANAGER'S PROFILE
Stephen Pesek is Senior Vice President of MFS Investment Management(R) and
portfolio manager of Massachusetts Investors Growth Stock Fund and the
Massachusetts Investors Growth Stock Series offered through MFS(R)/Sun Life
annuity products. He is also a portfolio manager of MFS(R) Institutional Large
Cap Growth Fund, MFS(R) Strategic Growth Fund, and MFS(R) Growth Series (part of
MFS(R) Variable Insurance Trust(SM)).
Mr. Pesek joined MFS in 1994 as a research analyst following the
pharmaceutical, biotechnology, and electronics industries. He became a
portfolio manager in 1996 and Senior Vice President in 1999. Prior to joining
MFS, he worked for seven years at a major investment management firm as an
equity analyst. He is a graduate of the University of Pennsylvania and has an
M.B.A. degree from Columbia University. He is a Chartered Financial Analyst.
All equity portfolio managers began their careers at MFS Investment
Management(R) as research analysts. Our portfolio managers are supported by an
investment staff of over 100 professionals utilizing MFS(R) Original Research
(SM), a company-oriented, bottom-up process of selecting securities.
SERIES FACTS
Objective: Seeks to provide long-term growth of capital and future income
rather than current income.
Commencement of investment operations: May 3, 1999
Size: $0.5 million net assets as of June 30, 1999
This report is prepared for the general information of contract owners. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
PORTFOLIO OF INVESTMENTS (Unaudited) - June 30, 1999
Stocks - 84.3%
- -------------------------------------------------------------------------------
ISSUER SHARES VALUE
- -------------------------------------------------------------------------------
U.S. Stocks - 79.9%
Advertising - 1.0%
Interpublic Group of Cos, Inc. 30 $ 2,599
Young & Rubicam, Inc. 50 2,272
--------
$ 4,871
- -------------------------------------------------------------------------------
Aerospace - 1.6%
AlliedSignal, Inc. 50 $ 3,150
Gulfstream Aerospace Corp.* 40 2,703
Raytheon Co., "A" 30 2,066
--------
$ 7,919
- -------------------------------------------------------------------------------
Banks and Credit Companies - 1.0%
Bank of New York Co., Inc. 50 $ 1,834
Wells Fargo Co. 70 2,993
--------
$ 4,827
- -------------------------------------------------------------------------------
Broadcasting - 1.0%
Infinity Broadcasting Corp.* 160 $ 4,760
- -------------------------------------------------------------------------------
Business Machines - 3.3%
Affiliated Computer Services, Inc., "A"* 80 $ 4,050
Texas Instruments, Inc. 50 7,250
Xerox Corp. 80 4,725
--------
$ 16,025
- -------------------------------------------------------------------------------
Business Services - 2.8%
Computer Sciences Corp.* 50 $ 3,459
Concord EFS, Inc.* 50 2,116
DST Systems, Inc.* 30 1,886
First Data Corp. 120 5,873
--------
$ 13,334
- -------------------------------------------------------------------------------
Computer Software - Personal Computers - 3.6%
Microsoft Corp.* 190 $ 17,136
- -------------------------------------------------------------------------------
Computer Software - Services - 1.4%
EMC Corp.* 50 $ 2,750
Sun Microsystems, Inc.* 60 4,132
--------
$ 6,882
- -------------------------------------------------------------------------------
Computer Software - Systems - 5.8%
Ariba, Inc.* 50 $ 4,862
BMC Software, Inc.* 110 5,940
Cadence Design Systems, Inc.* 130 1,658
Computer Associates International, Inc. 50 2,750
Compuware Corp.* 150 4,772
Oracle Corp.* 115 4,269
SunGard Data Systems, Inc.* 60 2,070
Synopsys, Inc.* 10 552
VERITAS Software Corp.* 10 949
--------
$ 27,822
- -------------------------------------------------------------------------------
Conglomerates - 0.5%
Kansas City Southern Industries, Inc. 40 $ 2,552
- -------------------------------------------------------------------------------
Consumer Goods and Services - 6.2%
Clorox Co. 5 $ 534
Colgate-Palmolive Co. 10 988
Galileo International, Inc. 60 3,206
Gillette Co. 10 410
Newell Rubbermaid, Inc. 80 3,720
Philip Morris Cos., Inc. 10 402
Tyco International Ltd. 220 20,845
--------
$ 30,105
- -------------------------------------------------------------------------------
Containers - 0.4%
Sealed Air Corp.* 30 $ 1,946
- -------------------------------------------------------------------------------
Electrical Equipment - 1.9%
Emerson Electric Co. 35 $ 2,201
General Electric Co. 35 3,955
Honeywell, Inc. 20 2,317
Jabil Circuit, Inc.* 10 451
--------
$ 8,924
- -------------------------------------------------------------------------------
Electronics - 5.1%
Altera Corp.* 80 $ 2,945
Analog Devices, Inc.* 130 6,524
Applied Materials, Inc.* 40 2,955
Atmel Corp.* 100 2,619
GlobeSpan, Inc.* 50 1,987
LSI Logic Corp.* 135 6,227
Teradyne, Inc.* 20 1,435
--------
$ 24,692
- -------------------------------------------------------------------------------
Entertainment - 5.5%
CBS Corp.* 50 $ 2,172
Clear Channel Communications, Inc.* 20 1,379
Comcast Corp., "A" 50 1,922
Gemstar International Group Ltd.* 20 1,305
Harrah's Entertainment, Inc.* 80 1,760
MediaOne Group, Inc.* 60 4,462
Time Warner, Inc. 160 11,760
Univision Communications, Inc., "A"* 30 1,980
--------
$ 26,740
- -------------------------------------------------------------------------------
Financial Institutions - 3.6%
American Express Co. 30 $ 3,904
Associates First Capital Corp., "A" 90 3,988
Citigroup, Inc. 110 5,225
Morgan Stanley Dean Witter & Co. 25 2,562
Providian Financial Corp. 20 1,870
--------
$ 17,549
- -------------------------------------------------------------------------------
Food and Beverage Products - 0.9%
Anheuser-Busch Cos., Inc. 30 $ 2,128
Nabisco Holdings Corp., "A" 50 2,163
--------
$ 4,291
- -------------------------------------------------------------------------------
Insurance - 2.4%
American International Group, Inc. 40 $ 4,682
Aon Corp. 30 1,238
CIGNA Corp. 50 4,450
Lincoln National Corp. 20 1,046
--------
$ 11,416
- -------------------------------------------------------------------------------
Internet - 0.1%
Ask Jeeves, Inc. 50 $ 700
- -------------------------------------------------------------------------------
Manufacturing - 0.7%
Danaher Corp. 30 $ 1,744
Illinois Tool Works, Inc. 20 1,640
--------
$ 3,384
- -------------------------------------------------------------------------------
Medical and Health Products - 2.9%
American Home Products Corp. 80 $ 4,600
Bausch & Lomb, Inc. 30 2,295
Bristol-Myers Squibb Co. 70 4,931
Pharmacia & Upjohn, Inc. 40 2,272
--------
$ 14,098
- -------------------------------------------------------------------------------
Medical and Health Technology and Services - 3.3%
Cardinal Health, Inc. 50 $ 3,206
Guidant Corp. 50 2,572
HEALTHSOUTH Corp.* 140 2,091
Medtronic, Inc. 45 3,505
United HealthCare Corp. 75 4,697
--------
$ 16,071
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Oil Services - 0.6%
Baker Hughes, Inc. 10 $ 335
Burlington Resources, Inc. 30 1,297
Schlumberger Ltd. 20 1,274
--------
$ 2,906
- -------------------------------------------------------------------------------
Oils - 0.8%
Apache Corp. 60 $ 2,340
Mobil Corp. 15 1,485
--------
$ 3,825
- -------------------------------------------------------------------------------
Pollution Control - 0.5%
Republic Services, Inc.* 90 $ 2,228
- -------------------------------------------------------------------------------
Restaurants and Lodging - 1.5%
Cendant Corp.* 80 $ 1,640
McDonald's Corp. 90 3,718
Wendy's International, Inc. 70 1,982
--------
$ 7,340
- -------------------------------------------------------------------------------
Special Products and Services - 1.0%
Carnival Corp. 50 $ 2,425
Royal Caribbean Cruises Ltd. 60 2,625
--------
$ 5,050
- -------------------------------------------------------------------------------
Stores - 6.5%
Circuit City Stores, Inc. 30 $ 2,790
CVS Corp. 155 7,866
Dayton Hudson Corp. 20 1,300
Home Depot, Inc. 10 644
Lowe's Cos., Inc. 70 3,968
Office Depot, Inc.* 140 3,089
Rite Aid Corp. 160 3,940
TJX Cos., Inc. 120 3,998
Wal-Mart Stores, Inc. 80 3,860
--------
$ 31,455
- -------------------------------------------------------------------------------
Supermarkets - 1.5%
Kroger Co.* 180 $ 5,029
Safeway, Inc.* 40 1,980
--------
$ 7,009
- -------------------------------------------------------------------------------
Telecommunications - 11.0%
AT&T Corp.* 90 $ 3,308
CenturyTel, Inc. 15 596
Cisco Systems, Inc.* 120 7,732
Corning, Inc. 10 701
Global TeleSystems Group, Inc.* 35 2,835
Lucent Technologies, Inc. 40 2,698
MCI WorldCom, Inc.* 140 12,049
Motorola, Inc. 80 7,580
Nortel Networks Corp. 50 4,341
QUALCOMM, Inc.* 10 1,435
Sprint Corp. (PCS Group) 70 3,999
Tellabs, Inc.* 45 3,040
Viatel, Inc.* 50 2,806
--------
$ 53,120
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Utilities - Electric - 0.4%
AES Corp.* 30 $ 1,744
- -------------------------------------------------------------------------------
Utilities - Gas - 0.2%
Williams Cos., Inc. 20 $ 851
- -------------------------------------------------------------------------------
Utilities - Telephone - 0.9%
Frontier Corp. 70 $ 4,130
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Total U.S. Stocks $385,702
- -------------------------------------------------------------------------------
Foreign Stocks - 4.4%
Finland - 0.8%
Nokia Corp., ADR (Telecommunications) 40 $ 3,662
- -------------------------------------------------------------------------------
Germany - 0.6%
Mannesmann AG (Conglomerate) 20 $ 2,988
- -------------------------------------------------------------------------------
Ireland - 0.4%
Elan Corp. PLC, ADR (Health Products)* 60 $ 1,665
- -------------------------------------------------------------------------------
Sweden - 0.7%
Ericsson LM, ADR (Telecommunications) 100 $ 3,294
- -------------------------------------------------------------------------------
United Kingdom - 1.9%
BP Amoco PLC, ADR (Oils) 50 $ 5,425
Vodafone Group PLC (Telecommunications) 20 3,940
--------
$ 9,365
- -------------------------------------------------------------------------------
Total Foreign Stocks $ 20,974
- -------------------------------------------------------------------------------
Total Stocks (Identified Cost, $385,676) $406,676
- -------------------------------------------------------------------------------
Short-Term Obligations - 14.5%
- -------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- -------------------------------------------------------------------------------
Federal Farm Credit Bank, due 7/01/99,
at Amortized Cost $ 70 $ 70,000
- -------------------------------------------------------------------------------
Total Investments (Identified Cost, $455,676) $476,676
Other Assets, Less Liabilities - 1.2% 5,902
- -------------------------------------------------------------------------------
Net Assets - 100.0% $482,578
- -------------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities (Unaudited)
- ------------------------------------------------------------------------
JUNE 30, 1999
- ------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $455,676) $476,676
Cash 4,995
Receivable for Series shares sold 4,755
Dividends receivable 51
Other assets 135
--------
Total assets $486,612
--------
Liabilities:
Payable for Series shares reacquired $ 301
Payable for investments purchased 3,720
Payable to affiliate for management fee 10
Accrued expenses and other liabilities 3
--------
Total liabilities $ 4,034
--------
Net assets $482,578
========
Net assets consist of:
Paid-in capital $427,594
Unrealized appreciation on investments 21,000
Accumulated undistributed net realized gain on
investments and foreign currency transactions 32,457
Accumulated undistributed net investment income 1,527
--------
Total $482,578
========
Shares of beneficial interest outstanding 42,046
======
Net asset value per share
(net assets / shares of beneficial interest outstanding) $11.48
======
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Operations (Unaudited)
- ---------------------------------------------------------------------------
PERIOD ENDED JUNE 30, 1999*
- ---------------------------------------------------------------------------
Net investment income (loss):
Income -
Interest $ 2,068
Dividends 54
-------
Total investment income $ 2,122
-------
Expenses -
Management fee $ 446
Shareholder servicing agent fee 21
Administrative fee 9
Custodian fee 22
Printing 13,000
Auditing fee 7,500
Legal fees 78
Miscellaneous 444
-------
Total expenses $21,520
Fees paid indirectly (4)
Reduction of expenses by investment adviser (20,921)
-------
Net expenses $595
-------
Net investment income $ 1,527
-------
Realized and unrealized gain (loss) on investments:
Realized gain (identified cost basis) -
Investment transactions $32,442
Foreign currency transactions 15
-------
Net realized gain on investments and foreign currency
transactions $32,457
-------
Change in unrealized appreciation on investments $21,000
-------
Net realized and unrealized gain on investments and
foreign currency $53,457
-------
Increase in net assets from operations $54,984
=======
* For the period from the commencement of the Series' investment operations,
May 3, 1999, through June 30, 1999.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Statement of Changes in Net Assets
- --------------------------------------------------------------------------
PERIOD ENDED
JUNE 30, 1999*
(UNAUDITED)
- --------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 1,527
Net realized gain on investments and foreign
currency transactions 32,457
Net unrealized gain on investments 21,000
--------
Increase in net assets from operations $ 54,984
--------
Net increase in net assets from Series share transactions $427,594
--------
Total increase in net assets $482,578
Net assets:
At beginning of period --
--------
At end of period (including accumulated undistributed
net investment income of $1,527) $482,578
========
* For the period from the commencement of the Series' investment operations,
May 3, 1999, through June 30, 1999.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS - continued
Financial Highlights
- ------------------------------------------------------------------------------
PERIOD ENDED
JUNE 30, 1999*
(UNAUDITED)
- ------------------------------------------------------------------------------
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
------
Income from investment operations# -
Net investment income(S) $ 0.04
Net realized and unrealized gain on investments and
foreign currency 1.44
------
Total from investment operations $ 1.48
------
Net asset value - end of period $11.48
======
Total return 14.70%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.01%+
Net investment income 2.57%+
Portfolio turnover 141%
Net assets at end of period (000 omitted) $483
(S) Subject to reimbursement by the Series, the investment adviser agreed to
maintain expenses of the Series, exclusive of management fees, at not more
than 0.25% of average daily net assets. To the extent actual expenses were
over this limitation, the net investment loss per share and ratios would
have been:
Net investment loss $(0.57)
Ratios (to average net assets):
Expenses## 36.19%+
Net investment loss (32.61)%+
* For the period from the commencement of the Series' investment
operations, May 3, 1999, through June 30, 1999.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Series has an expense offset arrangement which reduces the Series'
custodian fee based upon the amount of cash maintained by the series with
its custodian. The Series' expenses are calculated without reduction for
this expense offset arrangement.
See notes to financial statements
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Business and Organization
MFS Growth Series (the Series) is a diversified series of MFS(R) Variable
Insurance Trust(SM) (the Trust) which is comprised of the following 15 series:
MFS(R) Bond Series, MFS(R) Capital Opportunities Series (formerly MFS(R) Value
Series), MFS(R) Emerging Growth Series, MFS(R)/Foreign & Colonial Emerging
Markets Equity Series, MFS(R) Global Equity Series, MFS(R) Global Governments
Series (formerly MFS(R) World Governments Series), MFS Growth Series, MFS(R)
Growth with Income Series, MFS(R) High Income Series, MFS(R) Limited Maturity
Series, MFS(R) Money Market Series, MFS(R) New Discovery Series, MFS(R) Research
Series, MFS(R) Total Return Series, and MFS(R) Utilities Series. The Series is
organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The shareholders of each Series of the Trust are separate accounts of
insurance companies which offer variable annuity and/or life insurance products.
As of June 30, 1999, there were 6 shareholders in the Series.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last sale
prices. Unlisted equity securities or listed equity securities for which last
sale prices are not available are reported at market value using last quoted bid
prices. Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. Securities for which there are
no such quotations or valuations are valued at fair value as determined in good
faith by the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All discount is
accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date.
Fees Paid Indirectly - The Series' custody fee is calculated as a percentage of
the Series' month end net assets. The fee is reduced according to an arrangement
that measures the value of cash deposited with the custodian by the Series. This
amount is shown as a reduction of expenses on the Statement of Operations.
Tax Matters and Distributions - The Series' policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The Series
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as distributions from paid-in
capital. Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains.
(3) Transactions with Affiliates
Investment Adviser - The Series has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities.
The management fee is computed daily and paid monthly at an effective annual
rate of 0.75% of the Series' average daily net assets. The Series has a
temporary expense reimbursement agreement with MFS, whereby, MFS has voluntarily
agreed to pay all of the Series' operating expenses, exclusive of management
fees. The Series in turn will pay MFS an expense reimbursement fee not greater
than 0.25% of the Series' average daily net assets. To the extent that the
expense reimbursement fee exceeds the Series' actual expenses, the excess will
be applied to amounts paid by MFS in prior years. At June 30, 1999, the
aggregate unreimbursed expenses owed to MFS by the Series amounted to $20,921.
The Series pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Series, all of whom receive
remuneration for their services to the Series from MFS. Certain officers and
Trustees of the Series are officers or directors of MFS and MFS Service Center,
Inc. (MFSC).
Administrator - The Series has an administrative services agreement with MFS to
provide the Series with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Series pays MFS an administrative fee
at the following annual percentages of the Series' average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the Series' average daily net assets at an effective annual rate
of 0.035%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated $644,697
and $291,463 respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the Series, as computed on a federal income tax basis, are
as follows:
Aggregate cost $455,676
--------
Gross unrealized appreciation $ 24,853
Gross unrealized depreciation (3,853)
--------
Net unrealized appreciation $ 21,000
========
(5) Shares of Beneficial Interest
The Series' Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
Series shares were as follows:
PERIOD ENDED JUNE 30, 1999*
--------------------------
SHARES AMOUNT
- -----------------------------------------------------------------------------
Shares sold 42,073 $427,896
Shares reacquired (27) (302)
------- --------
Net increase 42,046 $427,594
======= ========
* For the period from the commencement of the Series' investment operations,
May 3, 1999, through June 30, 1999.
(6) Line of Credit
The Series and other affiliated funds participate in an $820 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made to temporarily finance the repurchase of
Series shares. Interest is charged to each fund, based on its borrowings, at a
rate equal to the bank's base rate. In addition, a commitment fee, based on the
average daily unused portion of the line of credit, is allocated among the
participating funds at the end of each quarter. The commitment fee allocated to
the Series for the period ended June 30, 1999, was $2. The Series had no
borrowings during the period.
<PAGE>
(C)1999 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
VGS-3 8/99 350
